Marijuana, pornography and illegal labour have created a hidden market in the United States which now accounts for as much as 10% of the American economy, according to a study. As a cash crop, marijuana is believed to have outstripped maize, and hardcore porn revenue is equal to Hollywood's domestic box office takings.

Despite laws that punish marijuana cultivation more strictly than murder in some states, Americans spend more on illegal drugs than on cigarettes. And despite official disapproval of pornography, the US leads the world in export of explicit sex videos, according to Reefer Madness: Sex, Drugs and Cheap Labour in the American Black Market, by Eric Schlosser.

Although the official American economy has been suffering a downturn, the shadow economy is enjoying unprecedented levels of success, much in the way that the prohibition period fuelled the illegal markets in the 30s. Schlosser found that three specific industries accounted for a major portion of this boom.

No aspect of farming has grown faster in the US over the past three decades than marijuana, with one-third of the public over the age of 12 having smoked the drug.

While the nation's largest legal cash crop, maize, produces about $19bn (£11.9bn) in revenue, "plausible" estimates for the value of marijuana crops reach $25bn. Steve White, a former coordinator for the US drug enforcement administration's cannabis eradication programme, estimates that the drug is now the country's largest cash crop.

Marijuana Belt

Schlosser writes: "Although popular stereotypes depict marijuana growers as ageing hippies in northern California or Hawaii, the majority of the marijuana now cultivated domestically is being grown in the nation's mid-section - a swath running from the Appalachians west to the Great Plains. Throughout this Marijuana Belt drug fortunes are being made by farmers who often seem to have stepped from a page of the old Saturday Evening Post."

Some of the most expensive crops are grown indoors on the west coast using advanced scientific techniques but the American heartlands account for the largest volume. Some estimates suggest 3 million Americans grow marijuana, although mostly for their own or their friends' use, but between 100,000 and 200,000 are believed to do so for a living.

The laws against the drug are strict. There were 724,000 people arrested for marijuana offences in 2001 and about 50,000 are in prison. Commercial growers can serve sentences far longer than those for murder, but the high risks appear to have had little effect on production or availability: 89% of secondary school students surveyed indicated that they could easily obtain the drug.

The annual number of hardcore video rentals in the US has risen from 79m in 1985 to 759m in 2001. Hardcore pornography in the shape of videos, the internet, live sex acts and cable television is now estimated to generate around $10bn, roughly the same amount as Hollywood's US box office receipts.

Americans spend more money at strip clubs than at Broadway, regional theatres and orchestra performances combined. The industry has mushroomed since the 70s, when a federal study found that it was worth little more than $10m.

Now the US leads the world in pornography; about 211 new films are produced every week. Los Angeles area is the centre of the film boom and many of those in the trade are otherwise respectable citizens.

Nina Hartley, a porn star, told Schlosser: "You'd be surprised how many producers and manufacturers are Republicans."

The majority of women in the films earn about $400 a scene. At the moment, there is a surplus of women in California hoping to enter the industry.

The internet has provided a fresh and profitable outlet. In 1997 about 22,000 porn websites existed; the number is now closer to 300,000 and growing.

More than a million illegal farmworkers are estimated to be employed in the US, with the average worker being a 29-year-old from Mexico.

Surplus labour

The total number of illegal immigrants is estimated at about 8 million and many are being paid cash in a shadow economy.

Many live in primitive conditions: a survey in Soledad, in the heart of California's agricultural territory, found that 1,500 of them, one-eighth of the town's official population, were living in garages. There are mutual economic benefits.

"Migrant work in California has long absorbed Mexican surplus labour, while Mexico has in effect paid for the education, health care and retirement of California's farmworkers," writes Schlosser. "Maintaining the current level of poverty among migrant farmworkers saves the average American household around $50 a year."

The advantages to the employer are clear, most notably in LA county, where an estimated 28% of workers are paid in cash.

Schlosser believes that the shadow economy will continue to thrive as long as marijuana and pornography remain illicit.

"A society that can punish a marijuana offender more severely than a murderer is caught in the grip of a deep psychosis," he concludes. "Black markets will always be with us. But they will recede in importance when the public morality is consistent with our private one. The underground is a good measure of the progress and the health of nations. When much is wrong, much needs to be hidden."

· Reefer Madness: Sex, Drugs and Cheap Labour in the American Black Market by Eric Schlosser, published by Houghton Mifflin